Investment Valuation in India

The Angel Tax imposed on start-ups has been the talk of the town lately. Various start-up founders have received demand notices from the tax authorities which plans to tax the capital receipts in the form of Income when the tax authorities believe that the amount is in excess of the value of the company. What is Angel Tax? In 2012, the then Finance Minister Pranab Mukherjee introduced a tax on unlisted companies which aimed at raising funds from investors (the 'angel investors") who invested in these companies with the objective of gaining significant returns. Since many companies used this route to launder money and raise funds at excessive valuations, the tax was imposed to arrest such money laundering. Angel Tax is a tax payable by the unlisted companies who raise funds via issue of shares where the share price is believed to be in excess of the fair market value of the shares sold. What is a Startup? An entity shall be considered as a Startup: (i). Upto a period o

Professional Competence and Due Care A valuer shall render at all times high standards of service, exercise due diligence, ensure proper care and exercise independent professional judgment. A valuer shall carry out professional services in accordance with the relevant technical and professional standards that may be specified from time to time A valuer shall continuously maintain professional knowledge and skill to provide competent professional service based on up-to-date developments in practice, prevailing regulations/guidelines and techniques. In the preparation of a valuation report, the valuer shall not disclaim liability for his/its expertise or deny his/its duty of care, except to the extent that the assumptions are based on statements of fact provided by the company or its auditors or consultants or information available in public domain and not generated by the valuer. A valuer shall not carry out any instruction of the client insofar as they are incompatible with the re

Business Combination The term ‘business combination’ in Ind AS 103 is a broader term than ‘amalgamation’. It is defined as a transaction in which an acquirer obtains control of one or more businesses. An acquirer may obtain control in a number of ways including, for example, by transferring cash or other assets, incurring liabilities, issuing equity instruments or without transferring consideration. There is a presumption of control if an entity owns more than 50% of the equity shareholding in another entity, though this may not always be the case. Business Ind AS 103 defines a business as an integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a return in the form of dividends, lower costs or other economic benefits directly to investors or other owners, members or participants. A business generally consists of inputs, processes applied to those inputs and the ability to create outputs. For Example, R Ltd.

Despite efficient markets which provide normal returns in the long run, active fund managers and capital market participants such as investors and traders often seek abnormal returns. Given the large pool of securities, market often 'misprices' some securities which provide opportunities to these fund managers to generate abnormal returns. This abnormal return is known as Alpha Return. The amount by which the investment is mispriced by the market becomes part of the total return expected by the manager over the holding period of investment.  We call it ex-ante Alpha and is given by: ex-Ante Alpha = Expected Return - Required Return Note that we use various models to calculate the Required return such as Capital Asset Pricing Model (CAPM) ans represents a fair return expected on similar assets with similar risks. Example: Now Let's see how can we calculate the Expected Return. For example, if an Analyst believes that a security which is currently p

The Companies Act 2013 has promoted structured business organisation even for individuals. Why run an uncontrolled, unregulated sole proprietorship business when you can be guided and recognised by an Act? Even if you are an individual, you can now create and run a company under Companies Act 2013 - a ONE PERSON COMPANY.  Section 2(62) defines One Person Company as a company which has only one person as a member. Here are some things that you should know about One Person Company: One Person Company (OPC) is a private company   The said member (shareholder) should be a natural person. The words “One Person Company” shall be mentioned in brackets below the name of the company, wherever it is printed, affixed or engraved [Section 12(3) second proviso]. The memorandum of OPC shall indicate the name of the person who shall become the member of the company in the event of the death of the subscriber. The name of such person can also be changed by the member [Section 3(1)(c)

Under Companies Act 2013, an Associate Company, in relation to another company, means a company in which that other company has a significant influence. - “Significant Influence” means control of at least 20%. of total share capital, or of business decisions under an agreement;  - Associate Company is NOT a Subsidiary Company  - It includes a Joint Venture Company irrespective of the shareholding Further, Control includes:  - right to appoint majority of the directors or  - to control the management or  - policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders’ agreements or voting agreements or in any other manner.